38 MARCH / APRIL 2021 Question: My bank has an opportunity to invest in a community economic development corporation (CEDC). Are investments like this permitted under Indiana law? If they are allowed, is there a limit on the amount of investment? Answer: An Indiana bank may invest, directly or indirectly, in equity investments in a CEDC provided it follows certain requirements under Indiana law, as well as all applicable federal laws. A CEDC is one of several entities a bank is permitted to make an equity investment in, based on its focus on “community-based economic development” activities. Indiana law defines community-based economic development as “activities that seek to address economic development through affordable housing development or the rehabilitation of qualified rehabilitated buildings or certified historic structures, or that seeks to address economic causes of poverty within specific geographic areas, revitalizing the economic and social base of low income communities through activities that include: (1) small business and micro-enterprise support; (2) commercial, industrial, and retail revitalization, retention, and expansion; (3) capacity development and technical assistance support for community development corporations; (4) employment and training efforts; (5) human resource development; and (6) social service enterprises.”1 It is important to review the structure of the CEDC to ensure it satisfies the requirements of Indiana law before making the proposed investment. Indiana law defines a CEDC to mean a private nonprofit corporation whose board of directors is comprised This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. primarily of community representatives and business, civic and community leaders, and whose principal purpose includes the provision of housing, communitybased economic development projects, and social services that primarily benefit low-income individuals and communities.2 It is also important to monitor the aggregate amount of any investment the bank makes in equity investments in CEDCs. Indiana law provides that all of the aggregate investments of a bank in a CEDC (or any other qualifying community-based economic development investment) may not exceed 5% of the capital and surplus of the bank without the prior approval of the director of the Indiana Department of Financial Institutions. Further, even with the approval of the DFI director, the aggregate investment of an Indiana bank in any qualifying community-based economic development investment may not exceed more than 15% of the bank’s capital and surplus under any circumstances. Finally, in addition to reviewing provisions under Indiana law governing these investments, you must also review applicable federal regulations to ensure any investment is permitted by the Federal Deposit Insurance Corp. and, if applicable, the Office of the Comptroller of the Currency. If you are unsure as to whether an investment is permissible, contact your legal counsel, or reach out to the Indiana Department of Financial Institutions. HB Investing in a CEDC What is permissible under Indiana law? Brett J. Ashton Partner Krieg DeVault LLP bashton@kdlegal.com Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. COMPLIANCE CONNECTION 1 Ind. Code § 28-1-11-14(a) 2 Ind. Code § 28-1-11-14(b)
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